The Czech Republic is heading into a deadly spiral

Unemployment at ten percent, government reforms undermining the economy, antisocial and anti-family policies, corruption among politicians and capital flight from the economy into tax havens, destruction of the instruments of environmental protection, inability of the media to aptly inform on domestic and foreign affairs, low level of cooperation to address the crisis among civic activities – this is last year in the Czech Republic.

The economic development in the Czech Republic is influenced by government policies of fiscal consolidation and proposals of crucial reforms concerning the public sector.

Due to strong fiscal restrictions, domestic demand is plummeting. While in 2011 foreign trade was still able to compensate the drop in other segments of GDP, this was no longer true in the beginning of 2012. In 2011 GDP grew by 1.7 % with a noticeable deceleration in the last two quarters. In the first two quarters of 2012 the Czech economy fell into recession. The decline (-1 % in the 2. quarter) was caused primarily by a decrease in domestic demand, especially the households’ consumption.

As overall analyses of the Czech Statistical Office (ČSÚ) observe, the decline in government consumption was comparable to that of Greece, even though debt (both governmental and complex) is among the lowest in Europe. Equally strong is the reaction of households, which reduce consumption similarly to countries affected by debt crisis.

The Czech Republic continues to pursue an export-led growth model (external growth), though this is very risky due to a strong dependence on the external economic environment on which the country has no influence. The Czech government is making the great mistake of underestimating the importance of domestic demand.

The trade balance of 2011 was positive, but rather than export dynamics, this was caused by a slackening in imports which reflects weak domestic demand. Fiscal consolidation, the focal point of Prime Minister Nečas’s government, has a devastating effect on the economy. A decrease in social spending and growth of indirect taxation (VAT) with a regressive character has the most severe impact on poor people. Moreover, the government is failing totally in collecting VAT and fulfilling plans to collect this tax.

The government does not take into account the impact of these “austerity” measures on vulnerable categories of the population, the impact on domestic demand and the dynamics of foreign development. In short, it could be said that the government lacks of economic vision and focuses on ill-conceived cuts.

Corruption-related wastage and scandals have reached a new high. Estimates vary, but most of them place corruption-related wastage at about CZK 100 billions (USD 5 billions) each year. According to a paper by Global Financial Integrity, a Washington D.C. based NGO, USD 7 billions disappear from the Czech Republic each year through illicit tax evasion. Yet the Minister of Finance does not consider tax evasion to be important. In spite of the declared unfavorable situation the taxation of dividends has been abolished, resulting in a loss of about CZK 9 billions (USD 452 billions).

The government keeps “solving” the pressure on public finance by opening up new space for privatization of public systems. The introduction of a (voluntary) third pillar into the pensions system is scheduled for the coming years, draining 3% off the pay-as-you-go system and thus increasing the pensions account deficit, which reached a new high of almost CZK 40 billions (USD 2 billions) in 2011. Among other considered measures to the same effect are strengthening the position of private employment agencies, introduction of tuition fees, of so-called “above-standard services” into the healthcare system, etc.

Restraints, loan sharks and financial intermediaries of all kinds pose another rising problem of the Czech society, with little or no data available of its extent. Legal offices and other debt lobbyists are connected to this growing network. According to data from the Central restraints evidence there are currently more than 2.23 million pending seizures.

The budget deficit for 2011 has reached CZK 142.8 billions (some USD 7.2 billions), reduced to CZK 124.2 billions (USD 6.25 billions) under ESA 95 methodology, the difference being whether drawing money from European funds is considered. The budget for 2012 was as unrealistic as in 2008, when the Ministry of Finance “erroneously” overestimated economic growth by an incredible 9 percentage points. It was entirely unrealistic to include a significant growth in domestic demand and positive terms of trade into estimates of economic development.

It was therefore that, in the beginning of 2012, “stabilizing measures” were announced and later approved for the coming years. These measures should include some as drastic as freezing pensions (almost CZK 12 billions –USD 604 millions– in 2013, up to CZK 24 billions –1.21 billions– in 2014), another increase in VAT, abolition of maternity grants and housing payments. Proposals also include a temporary (!) restoration of progression in corporate income taxation. The combined effect of VAT growth, increase in payments for drugs and health care services (fees for hospital stays) and changes in the valorization scheme will strongly affect and further impoverish seniors.

Legislative regulation of civic associations

On January 1, 2011, an amendment to the law on “public benefit corporations” came into effect. This amendment includes a very controversial regulation of the status of “public benefit” as well as advantages and obligations bound to this status. Critics have pointed out the risk that granting or removing the status of “public benefit”, which will constitute access to grants, can be used as a form of oppression against organizations not wanted by the ruling political establishment.

Institutional security and support for the policy of equal opportunities

The year 2011 saw many changes in the institutional protection of equal opportunities for women and men. Unfortunately these were not positive changes. The equal opportunities policy has been turned into an entirely marginalized topic in the Czech Republic, outside the scope of interest of the government and often presented by both the political representation and the media as unacceptable “dictatorship of Brussels officials”. Since the May 2010 elections and all through 2011 the Governmental council for equal opportunities of women and men has not resumed their work. People with very conservative attitudes and little experience with the agenda have been appointed to important positions in the section of human rights and equal opportunities.

This attitude is reflected in the grant policy in this area. Few projects concerning equal opportunities of women and men are announced, and those few focus almost solely on the harmonization with EU legislation. In the last call within Operational Program Human Resources and Employment, none of the established non-profit NGOs succeeded despite their long-standing experience and expertise, while on the other hand private subjects that have never engaged in this issue and whose activities are unrelated to it were successful. Alone the fact that these subjects were often established just before the call was published is a clear sign of corruption.

Reform and women’s position in the Czech Republic

2011 has been another year of preparing and implementing neoliberal reforms in social and labor legislative passed by the ruling coalition of right-wing parties against the protests from both the political opposition and a number of civic organizations. This block of changes was presented to the public under the name “social reform”. It is a complex alteration of all social allowances for parents, handicapped people and members of low-income groups, together with changes in payment of unemployment benefits and changes affecting the status of the unemployed. These changes are furthermore accompanied by changes in the Labor Code, where many of them are weakening the position of employees. Most of these changes are effective since January 2012.

Problems can also be caused by changes in the definition of “public service”, which since January 1, 2012, also includes unemployed people, who have been receiving benefits for more than two months. These represent up to 20 hours per week in the form of compulsory work as a requirement for receiving unemployment benefits. People who refuse to service shall be removed from the register of the employment office. This is a principal suppression of social and human rights. Apart from this fact, it is unclear how the people unemployed due to the discrimination of those caring for children, which is a common thing in the Czech Republic, or those unable to place their children in overcrowded public nurseries shall provide their children with appropriate care.

The amendment also prohibits the concourse of drawing parental allowance and childcare allowance for parents of handicapped children, which brings about a significant worsening of the economic situation of such families and mainly of women, who typically leave work to take care of the household. Since this is accompanied by an increase of fees for hospital stays and the prices of medicaments have increased with the change in VAT, the financial situation of families with handicapped children is often critical.

Female migrants

In response to the economic crisis the Czech Republic has adopted a number of legislative measures to tighten the conditions of obtaining and prolonging work, residence and family reunification permits. The Czech migration policy can well be considered restrictive and aiming at greater control and repression of foreigners, not at guarantee the respect of their rights, including the labor rights.

The strictest measures affect male and female migrant workers in unqualified job positions, i.e. the group of people that often find themselves in a very vulnerable position towards the employer. Since January 2012 the sanction for illegally employed workers has also been increased to up to CZK 100,000 (USD 5,033). Such restrictive measures and the policies against migrating workers are played directly by employers, who can threaten their illegally employed workers with reporting them to the authorities in case of disobedience.

Environment

The Ministry of Regional Development has proposed an amendment to the Building Act which would considerably restrict the possibilities of civic organizations to participate in licensing procedures (and not only in the case of large industrial projects and infrastructure). The proposed amendment to the Act has disqualified civic organizations from certain phases of the licensing procedures and restricted the authority of local administration and owners of neighboring property. In reaction to this ministerial proposal a broad coalition of environmental organizations, civic initiatives and local administrations was created, demanding not only to preserve and increase the present possibilities of the public to influence licensing procedures, but also to decrease the power of so-called “authorized inspectors”, since in the past years they (just like distrainers) became the symbol of privatization of the public administration and of bypassing the objections of the public and property owners and legalizing illegal construction. In 2012, with the support of the ombudsman’s office and part of the public, an informal coalition of civic initiatives succeeded to preserve and increase the involvement of the public in the amended law, and also to formulate clear rules and public control over the problematic institute of “authorized inspectors”.

The Ministry of the Environment has also continued in the systematic destruction of environmental protection policies as the new minister replaced his party college, who resigned after the exposure of a yet unresolved corruption scandal in which money from the State Environmental Fund was diverted into the cash box of the leading government party. The new Minister of the Environment has become famous in the past, as an important representative of the now ruling party, thanks to the speech he delivered at a party congress: “We have to bring back capitalism to Europe. We have to make sure it is not Brussels, it is not civic associations, it is not the smartest governments, not labor unions and not eco-terrorists, who decides the lifestyle of Europeans.”

The government has also decided that emission permits were issued free of charge, primarily to big industrial and energetic companies, in the value of CZK 47.5 billions until 2020(USD 2,4 billions), stripping the state of significant resources necessary for installing environmental and social measures, while at the same time decreasing the regulatory effect of emission permits.

In 2011 there were also discussions about changing the air pollution fees. In this battle the industrial lobby was victorious in the end, represented among others by former right-wing Prime Minister and current leader of lobbyist group Teplárenské sdružení (Heating Plant Association) Mirek Topolánek. Through “their” MP’s (both from the government parties and the opposition), the greatest air polluters in the Czech Republic have pushed through exceptions from paying pollution fees in 2012 and will continue to pollute the air and damage both the environment and the citizens’ health free of charge.

Change in society

Due to undisguised corruption among the political elites, growing through the communal level and through regional politics up into the highest ranks, the citizens are increasingly dissatisfied with the present system. This is also perceptible from mainstream media, which to date remained very conservative and only showed little interest in deeper criticism leading to systemic change. Slowly they begin displaying systemic criticism, but there is still a lack of ability to work with independent and verified sources and to draw relevant conclusions.

The corruption of political elites, directed by the richest representatives of industry and banking and accompanied by a real unemployment of 10%, as well as pauperization of the poorest and the middle class, gives the citizens good reason for dissatisfaction. The reactions of civic activities vary from attempts of a constructive discussion with political parties to demonstration. They remain, however, extremely fragmented and thus play no important part in the political discourse.

The division of society remains an important factor, especially in the lower and middle classes. Although social expenditures are just a fraction in comparison with corruption or tax evasion and although the unemployed or socially excluded can hardly be blamed for the present crisis, it is them who bear the brunt of the attacks. These are often accompanied by racist rhetoric. On the other hand, criticism of the political and economic elite, who are responsible for this crisis, remains quite rare.

Political parties, including the present left-wing opposition, have yet failed to introduce any constructive proposals for a realistic dialogue with citizens. Any hope that the present or future government will attempt to democratize society, open up its institutions for greater citizens’ participation and move towards securing a decent life for all inhabitants of the country seems unrealistic so far. The influence of capital on media and politics still shows a strong tendency towards human rights violations.

Czech Republic on MDGs Agenda

Czechia Against Poverty is a network of more than 50 organization. In their campaign they have discussed the future of development and stated that together with the general objectives laid out by the MDGs there is a need for issuing road maps on how to achieve them. Furthermore, special attention has to be paid to other spheres, which are crucial for the basic goals and development in general. The Czech organizations united in Czechia Against Poverty decided to focus the attention of the public to four such spheres in the last year:

■ Achieving food security as a common responsibility of the South and North: In rich countries it is necessary to reduce food waste. Agriculture should concentrate particularly on local production, which provides for the needs of the inhabitants, and on using sustainable methods without dependence on transnational monopolies.

■ Promoting decent work: Call for minimum standards, strengthening national labor law and international control over compliance with this law. Through these measures positively influence not only the situation of employees in less developed countries, but also reduce the possibilities of capital transfer and extortion of employees and national governments in developed countries.

■ Providing electrification for all by 2030: Energy is the basic mover of development. If one quarter of the planet – especially in poor areas and rural areas – does not have access to electricity, it is hard to imagine its social economic development. Effective education, health services, crafts, production and food processing all require electricity.

■ Rebuilding the global financial architecture remains the key point: There is a need to reduce the speculative casino that exists with financial derivatives and vital commodities and to eliminate the possibilities of tax evasion through tax havens.